Gimme Shelter

Jobs Report Shows Labor Market Softening 

This week saw two big reports. The first was the much-anticipated and long-awaited Bureau of Labor Statistics (BLS) Jobs Report for October and November. The combination is due to the government shutdown. This report showed that in October, 105,000 jobs were lost, which was significantly weaker than expected. And, 64,000 jobs were created in November, which was slightly better than expected. The August and September numbers were both revised lower. 

Unemployment Rises and Full-Time Jobs Decline 

The unemployment rate comes from the Household Survey component of the Jobs Report. This showed a rise from 4.4% to 4.6%. This is a large rise in unemployment since the 4.1% rate we saw in July. This number only accounts for individuals actively seeking employment.  

The U-6 unemployment rate is often considered more accurate, as it includes people who are underemployed and those who would like to be employed. This rose from 8.0% to 8.7%, a considerable jump. It is now the highest level since March 2017, excluding the COVID-19 pandemic. Approximately 983,000 full-time jobs were lost, and 1,025,000 part-time jobs were gained. Overall, this was a good report for mortgage rates. 

Inflation Comes in Cooler Than Expected 

The second report was the Consumer Price Index (CPI) from the Bureau of Labor Statistics. The report was much tamer/lower than what markets were expecting. This is excellent news for mortgage rates, giving the Federal Reserve (Fed) potential “cover” to cut rates should the employment picture continue to weaken. Remember, the Fed’s favorite inflation gauge is Personal Consumption Expenditures (PCE). CPI is a great preview of PCE that comes out later in the month. 

CPI Trends Continue To Ease 

This report’s 3-month average was based on September, October, and November, as the government shutdown affected the data collection period. Headline CPI rose 0.10% over all three months, but the yearly number dropped from 3.0% to 2.7%. If you strip away the volatile food and energy prices, you are left with the Core CPI. This also rose 0.10% over these months but dropped from 3.0% to 2.6% year-over-year.   

Shelter Costs Lag Masking Housing Relief 

Why did Core CPI drop so much over these months? Shelter Costs only increased an average of 0.10% over this period and dropped annually from 3.6% to 3.0%. We have discussed repeatedly that shelter costs are an extreme lag, as most new rents only change when leases renew or new leases are executed.  

This can cause months of delays in showing a decline in rental and other housing costs. Real-time rent reports, such as Cotality’s Rent Index, are showing significant decreases in rental costs over the past several months. These results aren’t fully shown in the CPI and PCE reports due to the lag. 

Looking Ahead: Markets Watch Key Holiday Week Data 

Tuesday, December 23: Durable Goods Orders, Q3 GDP, ADP weekly jobs data. 

Wednesday, December 24: Initial and continuing jobless claims. Bond markets close at 2 pm. 

Thursday, December 25: Markets closed for the Christmas Holiday. 

All of us at Sunset Economix wish you a Merry Christmas and Happy Holidays!